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SAIC: A Company Built to Last

SAIC (NYSE: SAI  ) , a systems integration and technical services company, did something rare last week when it raised more than $1 billion in the IPO market. In fact, on its first day of trading, the stock surged from $15 to $18.18. Given the company's strong fundamentals, it looks like investors were not overreacting.

Founded 37 years ago, SAIC has actually been making profits every year. Then again, it has a customer base that includes 500 U.S. federal, state, and local agencies. Basically, the company helps these agencies solve major technical challenges in such fields as national security, intelligence, and homeland defense. It counts roughly 9,000 active contracts and a backlog of $16 billion.

For example, in terms of national security, SAIC has partnered with Boeing (NYSE: BA  ) to help with the U.S. Army's Future Combat Systems Program (FCS). The goal is to develop 19 battlefield systems connected with an advanced network, which will monitor military equipment and personnel. The deal has a total contract value of $2.7 billion.

Next, the company has a variety of contracts to build intelligence systems, although many of them are classified. One that is not top-secret is the development of sophisticated mapping technologies that will improve the effectiveness of unmanned vehicles, such as the Predator and Dragon Eye.

As for homeland security, SAIC helps design systems for emergency response, vulnerability analysis, and infrastructure protection. This includes protection from things like "dirty bombs," chemical agents, and even improvised nuclear devices.

True, SAIC has tough competitors such as General Dynamics (NYSE: GD  ) , Accenture (NYSE: ACN  ) , IBM (NYSE: IBM  ) , Computer Sciences Corporation (NYSE: CSC  ) , and Electronic Data Systems (NYSE: EDS  ) . But the company also has significant competitive advantages. Perhaps its most valuable asset is the highly skilled workforce of 43,100. Of these, more than 10,000 have advanced degrees and 1,500 have doctoral degrees. Moreover, 23,000 employees have national security clearances, which are difficult and time-consuming to obtain.

In addition, SAIC has plenty of experience with buying companies. During the past ten years, it has purchased 60 firms for an aggregate value of $1.7 billion. In other words, it understands how to integrate companies with skilled personnel and deal with the complex issues of cultural differences.

Most importantly, SAIC has strong fundamentals. For the year ended Jan. 31, 2005, the business generated revenues of $4 billion, which was an increase from $3.7 billion. Net income was $927 million.

And the growth should continue. After all, SAIC plays in the fertile areas of federal spending: the war on terror, defense transformation (to make the military more effective), intelligence, and homeland defense. Thus, if an investor wants to play these trends, SAIC is a great place to start.


Accenture is aMotley Fool Inside Valuerecommendation.

Fool contributorTom Taullidoes not own shares mentioned in this article.

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